Shree Cement expected to show strong post earnings in the coming quarters

Better capacity utilisation driven by increasing demand and higher realisations led Shree Cement post a strong quarterly performance. The net profit of the company grew by six times and the revenues by 55% as compared to the same figures n year ago.

Net sales for the company were driven by higher utilisation levels resulting in greater volumes. Utilisation levels improved from 72% last year to 88% to meet the increasing demand from the markets. The company has 70% of its market in North and 30% in Central India, which witnessed higher demand than the pan India demand. Even the power division saw higher volumes with production increasing form 160 million units to around 600 million units.

Realisations were 10% higher on a y-o-y basis and flat sequentially. This was primarily due to the narrowing of the demand-supply gap at the industry level.

Increasing raw materials and transportation costs has led to the cement companies keeping the prices high. Another major reason was the late arrival of monsoon this quarter leading to higher prices in July. As a result average realisation was higher in the current quarter.

On the expenditure front, the company s integrated business model helped in keeping its costs low. Freight and Forwarding expenses as percentage of sales declined by 220 basis points due to the proximity of the key markets. The power cost, though higher on a year-on-year basis, is substantially low as compared to the industry average due to flexible fuel strategy adopted by the company.

The company substitutes coal with pet coke and importing form diverse markets. The depreciation amount was 42% lower than last year due to the accelerated depreciation policy adopted by the company.

The stock price has risen 34% in September quarter suggesting the positives were already factored in the stock price. Analysts believe that Shree Cement is expected to show similar performance in the coming quarters due to better ability to push higher volumes, cost leadership and strong balance sheet.